Federal Judge Allowed State Farm Lawsuit to Proceed
Policyholders are challenging how State Farm handled life insurance products previously sold from PHL.
Updated on Sept. 22, 2026 in Insurance
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A federal judge in Illinois has denied State Farm's motion to dismiss a class-action lawsuit alleging the company misled customers about PHL Variable Life Insurance Co. policies. The court now requires additional briefing to determine if the case can proceed as a nationwide class action.
Why it matters
The litigation involves approximately 90,000 policies sold between 2001 and 2009, with many customers facing reduced payouts following the insurer's financial struggles. Resolving the choice-of-law issues is a critical step in determining how affected households may seek recovery for these claims.
State Farm collected $290 million in cumulative life premiums and $1.2 billion in annuity deposits for PHL policies, while some claimants report receiving only 15% of expected payouts.
The players
State Farm
A major national insurer that provides life, auto, and home insurance products to households.
PHL Variable Life Insurance Co.
A life insurance carrier, formerly known as Phoenix Life Variable Insurance Co., currently in rehabilitation.
The details
The lawsuit alleges that State Farm failed to properly disclose information regarding PHL Variable Life Insurance Co. policies, which were downgraded in 2009 and placed into rehabilitation by Connecticut regulators in 2024. The judge ordered further briefing because state laws differ significantly regarding the claims brought by the fourteen named plaintiffs. The case will determine if these claims can be consolidated into a single class action before the court addresses the underlying allegations of misrepresentation.
Timeline
March 2001: State Farm began selling PHL Variable policies.
2009: PHL ratings were downgraded and State Farm ceased sales.
May 2024: Connecticut regulators placed PHL Variable into rehabilitation.
2027: PHL is projected to be placed into liquidation.
Money Landscape
This litigation follows the pattern set by the 2024 placement of PHL Variable into rehabilitation by Connecticut regulators. It highlights the long-term financial risks households face when an insurer's credit rating drops, often resulting in diminished policy values.
Households holding older life insurance policies should monitor company credit ratings and review current payout terms with a qualified financial professional. If you believe your policy was misrepresented, you may wish to consult with legal counsel to understand your rights regarding potential class-action eligibility.
The takeaway
Large-scale insurance rehabilitation events can lead to significant reductions in policyholder benefits, as seen with some claims receiving only a fraction of their expected payout. Review your current life insurance statements and contact a financial professional to discuss the stability of your coverage provider.
Further reading
For more information on how financial ratings impact your coverage, visit the Insurance section.
Source note: This article includes information reported by InsuranceNewsNet.
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